5i Research Blog
Mar 15, 2017 5i Filter - "All Aboard" with Momentum
Momentum is a powerful tool for investors as it can indicate the investment thesis of a company is strong and/or improving. Finding a stock that repeatedly hits both new price and volume highs while trading at an appropriate valuation is certainly a criterion that can add value to your stock picking process.
With this iteration of the 5i Filter we have screened for stocks that have hit a 52-week high, and have a minimum $100 million market-cap. We have ranked results by the return over the 52-week period. A higher return increases the chance the stock has been strong over the entire period and is not just recovering from a previous trough. An example of this latter point would be MRD. The stock hit a 52-week high after surging roughly 22.0% since a November 17, 2016 ‘low’; however, the nine months previous saw the stock fall -10.0%.
What is better than price momentum? Price momentum with corresponding volume strength. High volume coupled with rising prices can indicate that traders are increasingly placing their long-term confidence in the stock. The filter lists only stocks that have hit an increasingly higher average volume over three different time periods – 1, 3 and 6-months. A higher volume over shorter time intervals is certainly a strong momentum indicator. We also note the proportion of average volume in the last 30-days vs. the last 6-months.
To round out the filter, we have included the forward price-to-earnings ratio and dividend yield. Value investors can use these figures to further screen results for improved valuations.
As always, please remember that this should simply be viewed as an idea generator and not a commentary on the merit of any of the above stocks for investment. You can view our previous filter here.
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